The Australian Energy Market Commission (AEMC) today published its draft report to the Victorian Government and the Ministerial Council on Energy (MCE) concluding that retail competition for both electricity and gas in Victoria is effective.

The draft report found that rivalry between energy retailers and the exercise of choice by customers has been effective in delivering efficient energy prices and services to Victorian consumers.

AEMC Chairman, John Tamblyn, said the Commission's draft finding that competition is strong and effective in Victorian retail electricity and gas markets is an important development for the national energy reform agenda.

"The evidence from Victoria shows that effective retail competition can deliver the efficiently priced, reliable and secure energy supply required by households and small business", he said. "Together with other energy market reforms, the development of effective retail competition in Victoria and elsewhere will stimulate more efficient supply and use of energy in the wider Australian economy."

"Our survey responses indicate that the large majority of customers (79 per cent of all domestic and 76 per cent of all small business customers) believe that the introduction of retail competition has been a positive development, with respondents citing increased choice, lower prices and a more competitive market as the primary reason for this view", Dr Tamblyn said.

The draft report cites evidence that Victoria has the highest switching rate of any energy retail market in the world with about 60 percent of all domestic and small business customers having switched from a standing offer contract to a competitive market contract for the supply of electricity or gas (or a combination), since the start of full retail competition in Victoria.

"Of those customers who have switched to market contracts, a large proportion of households (more than 70%) and small businesses (almost 60%) said the change had met their expectations."

The level of switching in Victoria appears to be largely in response to extensive marketing activity by energy retailers, including new entrant retailers who have increased their market share. Dr Tamblyn said retailers are offering customers price discounts below the regulated prices together with a range of non-price incentives to differentiate their energy service in ways that are attractive to customers.

"The substantial new entry into Victorian energy retailing that has occurred indicates that the conditions for entry into and expansion within the retail energy market are positive, adding to the competitive pressure on established retailers to offer improved prices and services to consumers ', Dr Tamblyn said.

The AEMC's draft report recognises there are legitimate concerns for energy consumers who, by virtue of their personal circumstances, may not be accessing the full benefits of the competitive energy market. It also notes that the Victorian Government has established a range of policy measures to safeguard the interests of these consumers.

The AEMC has now invited submissions on the draft report, which are due by 9 November 2007. Having considered stakeholder submissions, the Commission will publish its final report on the effectiveness of Victorian energy retail competition in December 2007.

‘"If our final report confirms the draft report conclusion that competition is effective, our next task is to prepare draft advice for the Victorian Government and the MCE on measures to phase out the current retail price regulation arrangements", Dr Tamblyn said.

The AEMC's review of the Victorian retail gas and electricity markets was initiated by an agreement of the Council of Australian Governments (COAG) and a direction of the MCE and will be followed by similar reviews in other States and Territories.